THE government has announced a set of incentives for business that are aimed at getting the wheels of the economy moving. Whether or not these steps help in achieving that objective is now the big question.

The speech by finance minister Asad Umar focused on the politics his party faces, as well as the incentives the government is offering to the business community in the hope that with more money placed at their disposal, investment will receive a boost.

The minister was correct to point out that Pakistan’s saving rate is far too low to support elevated investment, and growth in the face of a low savings rate is likely to prove self defeating.

It seems the measures tabled in the supplementary finance bill are trying to encourage investment and discourage the import of luxury items.

All bets, it seems, are now on getting growth started. The speech gave nothing away on how it will be paid for, so either there are tax bombshells hiding in the taxation details to be revealed later, or there is an ardent hope that revival in business activity alone will lead to higher revenues.

Read more: Advance taxes give artificial boost to revenue collection: SAI

The minister gave no indication of the revenue impact of all the incentives he announced, but given their sprawling scale — from customs duties to sales tax to income tax — it is likely to be substantial.

Also, in some cases like reduction in tax on inter-corporate dividends or elimination of the super tax on non-banking corporates after July 1, it is difficult to see why these merited such urgent treatment at this time.

One thinks of a mid-year mini budget as a course correction in response to immediate pressures. Large agenda-setting changes, particularly if they are to be made effective from July 1, did not need to be accommodated in a mid-year supplementary bill.

It appears that the measures and the bill have been designed to put a smile on the face of the business community. Such an exercise carries great costs in terms of revenue foregone. Whether or not it spurs economic growth is entirely another matter.

If there are indeed measures designed to offset the revenue impact of all the incentives, then we can be certain that big surprises lurk in the details. But if there are no surprises, and everything has been revealed, then the government has placed an outsize bet that stirring business sentiments will lead to a revival of growth.

And once the dust from this mini-budget session settles, the larger questions facing the government about structural reform and plugging the growing revenue shortfall will still be there. In that sense, it is now an open bet as to which will speak louder with the passage of time: the words of the finance minister or the silent gaps in the speech?

Published in Dawn, January 24th, 2019

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